Hunter Harrison’s CP Rail turnaround good for CN Rail too

CP Rail turnaround benefits CN Rail

The transformation of Canadian Pacific Railway Ltd. appears to be taking hold and providing a boost to an unlikely beneficiary — rival Canadian National Railway Co.

Keith Creel, CN’s chief operating officer, said Tuesday that he has already seen the positive influence of CP’s recently instated chief executive, and his former boss, Hunter Harrison. But CP’s improved performance, paradoxically, is having a positive impact on CN as well, especially at the Port of Vancouver, he said during a conference in Boston.

A strong competitor makes for strong competition; makes for two stronger railways

“I used to work for Hunter, so I know they’re reinvigorated,” Mr. Creel said. “A strong competitor makes for strong competition; makes for two stronger railways.”

Mr. Harrison took over as CEO of CP from Fred Green in June after a messy proxy battle led by Bill Ackman’s Pershing Square Capital Management L.P. Mr. Harrison is expected to unveil his detailed turnaround plan for CP at an investor day in New York City next month. But Mr. Creel said evidence of his influence is already apparent.

For example, the access to one of CN’s biggest grain elevators on the south shore at the Port of Vancouver is controlled by CP. Through their partnership at the port, CP takes CN’s grain shipments and loads them at that facility in exchange for CN doing the same for CP’s grain shipments at the elevators it controls on the north shore.

Mr. Creel said CN would historically be able to move only 5,000 grain cars a week at the facility, at most a couple of weeks a year.

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Typically, anything more 4,200 cars would cause congestion and backlog at the port. But he said CP’s improved operations, coupled with CN’s changes for grain loadings have recently led to the railway moving more than 5,000 grain cars through Vancouver for eight consecutive weeks.

“I have seen some improvements in [CP’s] metrics, which is encouraging,” Mr. Creel said. “For us to be able to do 5,000 unloads in a week, that’s also a reflection of CP doing better with their business.”

That’s not to say CN isn’t trying to win more work while CP undergoes its transition. Mr. Creel said the bulk of those gains will be made on the back of improved supply chain management, which has seen CN put a renewed focus on customer service, including measures to improve reliability and train speeds, including hosting town hall meetings with shippers, better rail car management measures, and tracking systems to drive deeper customer engagement.

Prior to these measures, Mr. Creel compared CN to a Ferrari engine with VW Beetle body. Now, it’s a “Ferrari with a few more options,” he said.

The renewed focus on customer service comes while new regulations are being drafted by the federal government that would legislate rail shippers’ rights to service agreements and implement a dispute resolution mechanism if they cannot reach accord with the railways. The regulations stem from the Rail Freight Service Review, and are expected to be tabled later this fall.

But Mr. Creel argued that the efforts to improve its service are being driving by its desire to win more market share. He said he expects CP to move toward that goal as well, and begin to sell its service once it gets there. But for now, he said CP remains well behind CN because many of its team, including himself, were taught by Mr. Harrison.

“We’re starting from this point. His team is starting from a whole different starting point,” he said. “We’re tweaking and optimizing. They’re rebuilding.”

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